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On Linear Quadratic Approximations

Debortoli, Davide and Nunes, Ricardo (2006): On Linear Quadratic Approximations.

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Abstract

We prove the generality of the methodology proposed in Benigno and Woodford (2006). We show that, even in the presence of a distorted steady state, it is always possible and relatively simple to obtain a purely quadratic approximation to the welfare measure. We also show that, in order to do so, the timeless perspective assumption is crucial.

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